Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.

Here's Why Axsome Therapeutics Rocketed 78.8% Higher in March

This tiny biotech may have found the tastiest low-hanging fruit the industry's ever seen.

What happened

Shares of Axsome Therapeutics(NASDAQ:AXSM), a clinical-stage biopharmaceutical company, soared 78.8% higher in March, according to data from S&P Global Market Intelligence. A handful of positive developments related to a new version of an old depression drug did the trick last month.

So what

In January, we learned that Axsome's AXS-05 outperformed standard treatment, and in March, more investors began to notice. Axsome was largely ignored, possibly because as its lead candidate, AXS-05 is simply bupropion plus dextromethorphan, the active ingredients in Wellbutrin and over-the-counter cough suppressants.

Image source: Getty Images.

AXS-05 isn't the most innovative new drug candidate, but there's a chance it could begin generating nine-figure sales in a couple of years as a new option for patients with treatment-resistant major depressive disorder (MDD). Physicians are already comfortable with bupropion and use it to treat seasonal affective disorder and attention deficit disorder. Under the brand name Zyban, it's also used to help smokers drop the habit.

Physicians have been warning patients not to mix Wellbutrin with dextromethorphan for decades because they amplify each other's effects. There's a good chance that mid-stage studies Axsome's running with AXS-05 in other indications commonly treated with Wellbutrin can succeed as well.

Now what

Johnson & Johnson(NYSE:JNJ) recently earned approval to market ketamine, the often-abused party drug, to patients with treatment-resistant depression under the brand name Spravato. If AXS-05's ongoing phase 3 study succeeds, tiny Axsome could end up competing with the world's largest healthcare company.

There should be enough room to grow for Johnson & Johnson and Axsome. The National Institutes of Health thinks 16 million Americans experience MDD each year and most of them don't respond to their first therapy.

It won't be long before we know if AXS-05 can become a popular new option for a huge underserved group. Axsome is currently enrolling patients with treatment-resistant depression into a phase 3 study with AXS-05 that should deliver results before the end of June.